What is confidential IPO filing? How is it different from traditional IPO filing?

The DRHP (draft red herring prospectus) is hidden in confidential IPO filing.

Confidential IPO filing

Details about the business are not made available publically when a company files a confidential IPO. Tata Play has recently pre-filed its confidential papers for an initial public offering on December 1 with the SEBI. Tata Play is the first firm to do so. No details about their business have been made public. The usual route involves the draft red herring prospectus (DRHP) being made public immediately when the market regulator receives it. 

Read: All you need to know about the SSBA Innovations IPO 

The Current Concept for IPO Listing

The mechanism currently involves companies following certain steps before filing for an IPO. They need to appoint merchant bankers, file the DRHP with SEBI, issue SEBIs draft observations, file the DRHP after updating it with SEBIs observations, and refiling the DRHP with the Registrar of Companies and SEBI. The information with SEBI becomes publically available except for the updated draft red herring prospectus. The confidential filing makes the IPO paper public only when the company files the updated draft red herring prospectus. 

Is the old IPO listing concept still followed?

Companies are allowed to use the old/current method if they wish to. Pre-filing or confidential filing is optional for companies that want to raise money through a confidential IPO.

What is the new concept?

In reality, confidential IPO filing is not a new concept. Developed markets like the US, Canada, and the UK have used this method for many years. The "new concept" was introduced in India in November 2022. Most of the filing process is the same, except that the IPO details are made public later. 

Is the public kept in the dark about a confidential IPO?

Companies must disclose that they have filed their papers with SEBI for the initial public offering (IPO). In such cases, only the draft red herring prospectus is disclosed at a later juncture. 

Read: All you need to know about the Avalon Technologies IPO.

Why the confidential IPO filing?

There are two reasons why the need for a confidential filing may arise. It is common for companies not to file for an IPO because the draft red herring prospectus (DRHP) contains much sensitive information. The law requires a DRHP to contain much information, including legal cases, risks, and business plans. It also includes information that might not be available to others, including competitors. The competitors can exploit this information if a draft red herring prospectus (DRHP) is made public. Interestingly, 57 out of 129 companies that filed for an IPO decided not to move forward due to various factors in FY19-21. Their sensitive information was public even when they chose to stay privately held due to them deferring their IPO ideas. It might have adverse effects on one's business. Hence, confidential filing helps with sensitive information disclosure later on at an appropriate time when the company is ready for listing, protecting the issuers who might not want to continue with their (initial public offering) IPO. 

Does the new concept have any restrictions?

Confidential IPO only lets companies market their IPO with Qualified Institutional Investors (QIBs). The old method allows companies to market it however they want. A confidential IPO only allows extensive marketing once the company files its updated DRHP with SEBI. 

Because the companies are only allowed to market their IPOs after filing their updated DRHPs, their timelines have also been extended by the SEBI. The traditional method allows companies to launch their IPOs within 12 months of SEBI observation. However, confidential IPOs can take 18 months. Companies choosing this route can issue compulsory convertible securities or new shares flexibly. They can also change objects of issue, promoter, director, etc., without refiling. 

What is a confidential IPO? Is it risky?

Details about the business are not made available publically when a company files a confidential IPO. Tata Play has recently pre-filed its confidential papers for an initial public offering on December 1 with the SEBI. Tata Play is the first firm to do so. No details about their business have been made public. The usual route involves the draft red herring prospectus (DRHP) being made public immediately when the market regulator receives it. 

Read: All you need to know about the SSBA Innovations IPO 

The Current Concept for IPO Listing

The mechanism currently involves companies following certain steps before filing for an IPO. They need to appoint merchant bankers, file the DRHP with SEBI, issue SEBIs draft observations, file the DRHP after updating it with SEBIs observations, and refiling the DRHP with the Registrar of Companies and SEBI. The information with SEBI becomes publically available except for the updated draft red herring prospectus. The confidential filing makes the IPO paper public only when the company files the updated draft red herring prospectus. 

Is the old IPO listing concept still followed?

Companies are allowed to use the old/current method if they wish to. Pre-filing or confidential filing is optional for companies that want to raise money through a confidential IPO.

What is the new concept?

In reality, confidential IPO filing is not a new concept. Developed markets like the US, Canada, and the UK have used this method for many years. The "new concept" was introduced in India in November 2022. Most of the filing process is the same, except that the IPO details are made public later. 

Is the public kept in the dark about a confidential IPO?

Companies must disclose that they have filed their papers with SEBI for the initial public offering (IPO). In such cases, only the draft red herring prospectus is disclosed at a later juncture. 

Read: All you need to know about the Avalon Technologies IPO.

Why the confidential IPO filing?

There are two reasons why the need for a confidential filing may arise. It is common for companies not to file for an IPO because the draft red herring prospectus (DRHP) contains much sensitive information. The law requires a DRHP to contain much information, including legal cases, risks, and business plans. It also includes information that might not be available to others, including competitors. The competitors can exploit this information if a draft red herring prospectus (DRHP) is made public. Interestingly, 57 out of 129 companies that filed for an IPO decided not to move forward due to various factors in FY19-21. Their sensitive information was public even when they chose to stay privately held due to them deferring their IPO ideas. It might have adverse effects on one's business. Hence, confidential filing helps with sensitive information disclosure later on at an appropriate time when the company is ready for listing, protecting the issuers who might not want to continue with their (initial public offering) IPO. 

Does the new concept have any restrictions?

Confidential IPO only lets companies market their IPO with Qualified Institutional Investors (QIBs). The old method allows companies to market it however they want. A confidential IPO only allows extensive marketing once the company files its updated DRHP with SEBI. 

Because the companies are only allowed to market their IPOs after filing their updated DRHPs, their timelines have also been extended by the SEBI. The traditional method allows companies to launch their IPOs within 12 months of SEBI observation. However, confidential IPOs can take 18 months. Companies choosing this route can issue compulsory convertible securities or new shares flexibly. They can also change objects of issue, promoter, director, etc., without refiling. 

What is a confidential IPO? Is it risky?

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